Housing Vacancy Rates Fall and No One Notices

The Census Bureau reported this week that housing vacancy rates in the third quarter were substantially lower than their year ago level. The vacancy rates for rental units fell from 9.8 percent in third quarter of 2011 to 8.6 percent this year. The vacancy rate for ownership units from 2.4 percent to 1.9 percent. (There are roughly twice as many ownership units as rental units.) The third data quarter data indicates that the housing market is substantially tighter than it was 2-3 years ago, even though vacancy rates are still well above pre-bubble levels.

It is remarkable that the vacancy data receive so little attention. These data were one of the ways that economists could have recognized the housing bubble. While house prices were going through the roof in the years 2002-2006, the vacancy rate was continually hitting new records. Concepts taught in advanced economics classes indicate that the price of items in excess supply are not supposed to be rising. It was therefore not reasonable to expect the run-up in house prices to be sustained given the large amounts of vacant housing available. The reduction in the excess supply is consistent with other data showing a recovering housing market.